## Finland: 2024 Article IV Consultation-Press Release; and Staff Report

_IMF Staff Country Reports, March 11, 2024_

## Source details

**Canonical URL:** [Finland: 2024 Article IV Consultation-Press Release; and Staff Report](https://www.imf.org/en/publications/cr/issues/2024/03/08/finland-2024-article-iv-consultation-press-release-and-staff-report-546074)

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## Bibliographic details
- Published: March 11, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400270406.002

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### Overview
- Finland’s economy recovered swiftly from the pandemic, but growth slowed after Russia’s war in Ukraine.
- Activity stalled with a contraction of 0.5 percent estimated in 2023.
- Inflation has fallen to levels that are more normal and financial conditions appear to be easing.
- Structurally, adverse demographics and weak productivity have resulted in low trend growth, weighing on public finances.

### Macroeconomic performance and outlook
- 2023: contraction of 0.5 percent.
- Recent developments: weaker household income growth, falling house prices, higher interest rates, and low growth in Europe have contributed to stalled activity.
- Inflation: described as having fallen to levels that are more normal.
- Financial conditions: appear to be easing.

### Structural challenges
- Adverse demographics.
- Weak productivity.
- Low trend growth, with negative implications for public finances.
- Enhancing employment and productivity identified as essential for improving economic growth prospects.

### Policy recommendations (labor, social, and fiscal)
- Support for government efforts to boost employment through:
  - Social benefit reforms.
  - Greater flexibility in the labor market.
  - Lowering the labor tax wedge.
- Emphasis on measures to enhance employment and productivity as central to restoring stronger growth and fiscal sustainability.

### Financial sector assessment and macroprudential policy
- Financial system: remains resilient, but rising systemic risks warrant vigilant monitoring.
- Banks: have sufficient capital to withstand adverse macroeconomic shocks, including geo-economics fragmentation and weakening of profits and capital ratios.
- Macroprudential toolkit recommendation:
  - Add debt-to-income and debt-service-to-income limits to prevent excessive household indebtedness and improve borrowers’ repayment capacity.
  - These measures could be activated when concerns regarding adverse effects on demand and house prices subside.

### Key takeaways
- Immediate concern: stalled activity and a 0.5 percent contraction in 2023 driven by weak incomes, housing market weakness, higher interest rates, and weak external demand.
- Medium-term challenge: low trend growth due to demographics and productivity, stressing public finances.
- Policy priority: raise employment and productivity via labor-market reforms, social benefit changes, and lower labor tax wedge.
- Financial stability: system resilient but requires monitoring; add borrower-based macroprudential limits to the toolkit for use once near-term demand and house-price concerns ease.

*Finland: 2024 Article IV Consultation-Press Release; and Staff Report*

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_Source: https://www.imf.org/en/publications/cr/issues/2024/03/08/finland-2024-article-iv-consultation-press-release-and-staff-report-546074_